Archive for the ‘Financing’ Category

Mahima Narula on the E-Commerce Revolution

Monday, March 10th, 2014

Mahima Narula Icon ImageAs more and more people shop online, industry experts say that e-Commerce has the potential to eclipse traditional retail shopping. And with the increasing number of mobile sales transactions, this transition could happen sooner than we think.

Launched in 1999 as an exclusive online purveyor of floral arrangements and gifts, Flora2000 is a particularly good example of an e-commerce company that’s successfully taken traditional gift giving into the 21st century. Over the years, the brand has expanded its network across the world and presently has the largest network of vendors with delivery in over 190 countries. According to Mahima Narula, business head at Flora2000, nearly 170 million people live outside the countries in which they were born, an important—and lucrative—market for companies like Flora2000. Many of their customers, for example, regularly purchase products to be delivered to friends and loved ones back home.

E-commerce companies are especially adept at serving business travelers, whether they are flying around the globe or driving from one town to the next. With just a couple of keystrokes, a department head can arrange for his or her entire team to receive a “job well done” gift from any number of websites. Similarly, online retailers like Red Envelope and Birchbox make it easy to shop for just about anyone on your list, from a loved one to a business associate. Online dating companies, like Zoosk, offer easy-to-use apps while many social media sites like LinkedIn, Facebook and Twitter are now serving as a backdrop for those seeking love.  “Tweetup” or Twitter meet-ups, occur between people who meet at an event organized through Twitter.

Social media, whether it’s Instagram, Pinterest, Twitter, or Facebook, offers another opportunity for e-Commerce companies to increase their customer base. Creating an online presence opens up tremendous opportunities for marketing campaigns like product launches and contests. Social media also increases a company’s visibility. And the content potential is infinite.

Another critical piece is research. It is essential for e-Commerce companies to reach out to two important groups: customers who’ve already purchased products (“retention”) and those they’re trying to attract (“acquisition”). To keep the customers they have, companies maintain communications by regularly sending out newsletters, implementing loyalty programs, and staying engaged through social media. To acquire more customers, the companies must constantly seek ways improve their SEO rankings, collaborate with various affiliates, use pay-per-click ads if appropriate, and maintain active public relations campaigns.

And it’s always good business to keep an eye on what other online purveyors are doing to snag more business. Amazon’s warehouse building spree and Ebay’s social pop-up store in London are good examples of e-Commerce companies embracing portions of traditional retail models in order to increase revenue.

Listen to the podcast here.



S&P Gives US a Thumbs UP

Wednesday, June 12th, 2013

The S&P has upped the US.  It has raised the outlook for US debt from “negative” to “stable” which some take as an indication that we are unlikely to see a ratings slide like the one in 2011 that took us from AAA to AA+ anytime soon. The agency cited a lower federal deficit, the willingness of the Fed to stimulate the economy some more, and a slightly improved political climate as reasons. S&P also estimates, citing Congressional Budget Office data, that federal debt held by the public will stabilize at 84 percent of GDP in the near future. Congressional Budget Office projected the U.S. deficit will shrink to $642 billion this year, from over $1 trillion the past four years. Much of this, of course can be attribute to the tax increases, along with the sequestration cuts that kicked in March 1.

One of the ironies of the credit downgrade is that it also abraded a little of Standard & Poor’s brand. According to Treasury officials, the firm made an error in estimating discretionary spending levels at $2 trillion higher than what the Congressional Budget Office estimated. After being alerted, S&P lowered its calculations by $2 trillion but pressed ahead with the downgrade which irked many in the Treasury department.

The question is, does it mean anything? Many maintain that S&P’s downgrade two years ago had no consequences for U.S. interest rates, the stock market or the value of the dollar. Taking a look at the real estate industry, we see the foreign investment in the US actually increased with the first half of 2013 posting $7.97 billion, a 25% jump over 2012– evidence that global capital still believes in the US as a safe haven for their money. According to the OECD, the US economy will grow 1.9% this year and 2.8% in 2014.

Home Prices Spike But Is It Real?

Monday, May 6th, 2013

Economists tell us that the reason the US is doing better than Europe is because of two things: our equity markets and our housing sector.  And now comes the news that housing is posting its best numbers since 2006.  The widely followed Case-Shiller indexes showed the price of single-family homes across 20 of the most important U.S. cities grew 9.3% in February, its fastest rate since May of 2006. Single family starts are expected to rise to 700,000 new homes (from 535,000 in 2012) and to 1 million in 2015.

All of this activity is, of course, being driven by all-cash investors looking for high returns (the Blackstone Group is reputedly spending $100 million a week buying homes). And homebuyers eager to lock in at record low interest rates who have very little to choose from. The reasons for short supply aren’t however related to the health of the market but because of the obverse. Home prices are still 29% to 30% off their mid-2006 peaks and monthly foreclosures are more than double what they were before the recession. Clearly, underwater homeowners and people who’ve seen some part of their equity vanish simply don’t want to take a loss so they’re waiting it out. As a result, we’re building more.

As housing price gains 23% per year in Phoenix; 17.6% in Las Vegas, and 16.5% in Atlanta, let us think carefully before we go on a building spree. We still have 1.1 million homes in some state of foreclosure and a shadow inventory that tops 2 million. It is important that we temper the current exuberance with a view to not flooding the market with excess inventory. The housing sector is critical to our recovery for two large reasons – the wealth effect which bolsters consumer spending and the fact that small to medium-sized businesses rely on home equity lines of credit to underwrite their businesses. True recovery can only happen with housing.

Charles Krawitz on The Banking Comeback

Monday, April 8th, 2013

Charles Krawitz Instagram Image 2013On the latest episode of The Alter Group Podcast on Real Estate, Charles Krawitz used his 25 years of experience in financing of thousands of transactions, and the sale of highly distressed loans and REO assets to give us an inside look at the recovery of the banking sector.  Banks now hold 49% of all commercial real estate debt and mortgage originations for the sector spiked 24% last year.

According to Charles, larger and regional banks which were saddled with distressed assets after 2007 have worked through their backlog of delinquent loans and are winding down the special assets groups tasked with dealing with problem notes and REO assets. Now, banks are once again seeing prospects in multifamily, medical office and grocery-anchored retail.

He spells out the trends of lending with banks doing full-recourse 75% loan-to-values but with shorter terms – interim or bridge loans rolling into a 3-5 year mini-perm. On the other hand life insurance companies, which are doing more originations than before the recession, are doing 3-20 year loans with 60% LTVs. Conduits which topped $40 billion in 2012, are doing 10 year loans (albeit with  a preference for institutional-grade assets, higher-credit borrowers, significant equity).

Beyond lending from their balance sheets, banks are also procuring capital on behalf of their clients from sources such as the GSA, life insurance and the CMBS. According to Charles, being a third-party solutions provider to clients is one of the new frontiers for regional and larger banks.

To hear Charles Krawitz on the Banking Bounceback, listen to the latest episode of the AlterNow Podcasts.

Crowdsourcing Our Debt

Wednesday, December 19th, 2012

You’ve heard of Kickstarter where budding entrepreneurs and artists reach out via the internet to regular folk to get them to fund their idea in return for swag or just a thank you? Well now, a group of Occupy Wall Street people are using that idea to get people out of debt. Strike Debt is the organization and their central front against financial ruin is called the Rolling Jubilee fund.

Here’s how their website describes it: “Banks sell debt for pennies on the dollar on a shadowy speculative market of debt buyers who then turn around and try to collect the full amount from debtors. The Rolling Jubilee intervenes by buying debt, keeping it out of the hands of collectors, and then abolishing it. We’re going into this market not to make a profit but to help each other out and highlight how the predatory debt system affects our families and communities. Think of it as a bailout of the 99% by the 99%.” The Rolling Jubilee Fund is a non-profit 501c4 (“an organization whose primary activity is the promotion of social welfare”), so it’s not a charity. So,  contributions cannot be written off against taxes. This is a very fine use of social media and certainly American altruism at its most innovative.  There’s been some carping that getting people to buy others out of debt exemplifies the whole concept of moral hazard (the situation where people make foolish financial plays knowing others will bail them out) but that really doesn’t apply here. Soaring debt isn’t a consequence of lavish spending; it’s largely because of medical debt (the cause of 60% of bankruptcies) or unemployment. And it’s not high rollers who are buried in bills but the middle class.

Here’s how newly elected Senator Elizabeth Warren put it in a 2004 interview:

“Seventy percent of American families last year said that they are carrying so much debt that it is making their family lives unhappy. Middle-class Americans, hardworking, play-by-the-rules Americans, Americans who lost a job, Americans who don’t have health insurance, Americans who are in the middle of a divorce, Americans who are trying to take care of elderly parents, … those are the Americans who are carrying enormous credit card debts. Those are the ones who are handing over every eighth paycheck just to make the interest payments on their outstanding credit card bills. That’s who’s paying the real price of a deregulated credit industry and unleashing a monster that says 9.9 percent interest for most of you guys, but once you’re in a little trouble … 29.9 percent.”




US Banks Resurgent

Monday, December 10th, 2012

Banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported income of $37.6 billion in the third quarter, a 6.6 percent improvement over third quarter, 2011. This is the 13th consecutive quarter that earnings have registered a year-over-year increase. The other big news —  the decline in the number of banks on the FDIC’s “Problem List” from 732 to 694. This is the first time in three years that there have been fewer than 700 banks on the list

For the economy, this means more liquidity as loan balances posted their fifth quarterly increase in the last six quarters, rising by $64.8 billion . Loans to commercial and industrial borrowers increased by $31.8 billion (2.2 percent), while residential mortgages rose by $14.5 billion (0.8 percent) and auto loans grew by $7.4 billion (2.4 percent). The bad news? The nerves around the fiscal cliff may have caused home equity lines of credit to decline by $12.9 billion (2.2 percent), and real estate construction and development loans fell by $6.9 billion (3.2 percent). Remember that $2 billion of property construction and design would be eliminated if sequestration happens, cutting 66,500 jobs.

Still, the FDIC report is cause for optimism. Only 12 insured institutions failed during the third quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were also 12. An additional seven banks have failed so far in the fourth quarter, bringing the year-to-date total to 50. Through December 4, 2011, there had been 90 failures year-to-date.

“More than 55 percent of all banks reported loan growth,” Chairman Gruenberg noted. “Small banks are also increasing their lending, including their loans to small businesses.”

The complete Quarterly Banking Profile is available both here and at on the FDIC Web site.

October Job-Creation Numbers Show Slight Uptick

Monday, November 26th, 2012

The October employment report won’t blow anyone out of the water, but showed a modest improvement that caused many to breathe a sigh of relief.  According to the Department of Labor, 171,000 jobs were added in October – the highest number since February.  Retailing (up 36,000); healthcare (up 31,000) and business services (up 51,000) showed the most significant gains.  August and September employment numbers were also revised upwards by 84,000 jobs.  The nation’s unemployment rate stood at 7.9 percent, a slight tick upwards from the 7.8 percent reported in September.

Possibly of greater significance is the fact that the workforce showed signs of growth, with the labor force participation rate rising to 63.8 percent.  More than 500,000 Americans started job hunting in October.  The current number includes 12.3 million people who have no jobs; 8.3 million who work part-time; and 2.4 million who have stopped looking for work.  Compare this with October, 2009 – at the height of the Great Recession — when the unemployment rate was 10 percent.  Prior to the recession, the unemployment rate averaged five percent or less. Even though it has declined from its peak, it is still approximately three percent less than what is considered to be full employment.

Writing in The New Yorker, John Cassidy says that “Over the past year, the total number of people employed has risen from 140.3 million to 143.4 million, according to the household survey.  After allowing for population growth, the number of people unemployed has fallen by a million, and the number working part-time or no longer actively looking for work has dropped by about half a million.  The number of people who have been out of work for more than six months – the hard-core unemployed – has fallen by more than 800,000, and it now stands at five million.”

Despite the upbeat news, Americans still are not seeing any improvement in their standard of living.  In October, the average hourly wage for workers in the non-farm sector fell one penny to $23.58.  Wages have risen a scant 1.6 percent in the last year, less than the inflation rate.

Want to Feel Better About the Economy? Take a Look at the Rest of the World

Monday, September 10th, 2012

There is no doubt that America needs to get its economic mojo back: in the 2nd quarter its GDP grew at an annualized rate of 1.7 percent, according to revised figures published on August 29th.  That growth number is down from two percent in the 1st quarter and 4.1 percent in late 2011. But, anyone ready to ascribe that number to mismanagement or competition from emerging economies should consider the state of much of the developed world.

Europe remains the cautionary tale with GDP shrinking by 0.2 percent (an annualized decline of 0.7 percent) in the 2nd quarter. The Greeks are on the verge of quitting the common currency and Spain is looking for a bigger bailout.  According to the Economist, the research firm Markit is predicting a further fall in GDP in the 3rd quarter.

Finland’s economy shrank by 1.1% in the second quarter. The country had been one of the euro zone’s best performers, but the crisis is now starting to take its toll on exports, which account for 40% of Finnish GDP. In July the finance minister said Finland would “not hang itself to the euro at any cost”.

The Japanese economy is feeling the European gloom with exports to the European Union falling by a steep 25 percent in the year to July.  The only reason their economy grew by 3.5 percent over the last 12 months is because of all the reconstruction work after the tsunami and earthquake.

Even the high-flier BRIC countries (Brazil, Russia, India and China) are sputtering.  Brazil’s fall from grace has been particularly marked:  Brazil’s economy grew at an annualized pace of only 1.64 percent in the April-June period. It is forecasted to grow 1.9 percent this year, less than the 2.15 percent in the U.S. and 2.5 percent expected in Japan. One bright spot – Brazil scored the rare coup of winning the bid for the 2014 World Cup and the 2016 Summer Olympics, leading to $38.1 billion in foreign direct investment this year.

Flagging imports suggest that China’s slowdown will prove to be more severe than previously expected.  The country’s exporters are also having a hard time.  In August, new export orders for manufacturers were at their weakest since March 2009, according to Markit.

So, while the campaign rhetoric heats up, with each side blaming the other, it is important to see the bigger picture. A big part of our weak job numbers was that U.S. factory activity shrank for a third straight month in August — because of factors outside our control.  Weak demand from China (our 3rd largest market) hits our farmers, IT firms and chemical companies. When Europe contracts, that makes our manufacturing free fall because they buy 20 percent of our exports.  In the end, we need to place our woes in context and recognize that the recession is indeed world-wide.

US Banks Lending Again

Tuesday, August 14th, 2012

US banks are finally opening their purse strings according to The Federal Reserve’s quarterly senior loan officer survey. Who’s getting loans? Large companies, people with decent credit applying for auto loans or credit cards and also people buying homes. There are a number of reasons for why the banks are feeling more confident: less competition from beleaguered European financial institutions; households, whose spending makes up 70 percent of the economy, have cut debt since the 2008-09 credit crisis to 1994 levels; and banks have increased liquidity and bolstered capital buffers.

In fact, we are now at a post-recession high in terms of lending by banks. Borrowing by consumers and businesses rose in the week ended July 25 to $7.1 trillion, (2.9 percent shy of its October 2008 peak) according to Federal Reserve data. New lending for autos jumped to $134.3 billion in the first four months of the year, up 56 percent from the same period in 2009, according to credit bureau Equifax Inc. (EFX)

One sector that’s benefited is the U.S. auto industry which is on pace for its best year since 2007. Light-vehicle deliveries rose 8.9 percent in July to 1.15 million, and first-half sales are up 15 percent, setting a pace for more than 14 million annual sales, according to researcher Autodata Corp. This has a big impact on the overall economy: autos and auto parts comprise 7 percent of U.S. manufacturing, according to the Fed.

Cyber Threats to Our Economy

Monday, August 13th, 2012

All of Wall Street is abuzz about stock brokerage Knight Capital which was brought to the edge of bankruptcy by a software glitch. Seventeen-year old Knight is one of the most trusted trading intermediaries for many of America’s largest mutual-fund companies and retail brokers. It could have all ended when, on August 1st, a software glitch caused a barrage of unintended trades, affecting the opening prices of more than 100 securities, with a particularly large impact on half a dozen shares. Knight was left with a hole in its accounts of $440 million and promptly saw most of its customers flee. Kudos to Knight’s management which did superb damage control, righting technical problems, retaining skittish employees, pacifying regulators and luring back customers while securing a financing package compelling enough to restore confidence — a capital injection of $400 million in equity from a consortium of financial firms, including Jefferies Group, an investment bank; Blackstone, the private-equity giant; GETCO, a Chicago-based competitor; and two brokers, Stifel Financial and TD Ameritrade – in return for 70% of the equity of the firm. Employees with long-term equity incentives saw their stakes wiped out but the company was saved. Knight’s near miss is a reminder of the seriousness of computer malfunctions. We saw glitches on Facebook’s first day of trading on the NASDAQ stock exchange (caused by and upgrade to the Nasdaq OMX platform) and a shaky debut for BATS Global Market on its own electronic exchange.  utside of Wall Street, a software bug caused Southwest Airlines to charge online customers several times over for the same flight.

Computer shutdowns are catastrophic because there are few insurance products to protect businesses from glitch-related losses.  “If they’d had a fire in a server room, then that would have been covered,” says Robert Hartwig, president of the Insurance Information Institute, but such catastrophic losses from a software malfunction go beyond most comprehensive cyber insurance plans, which generally cover first party business interruption losses and costs association with hacking attacks. Part of the reason is that the rising number of costly data breaches is prompting insurance underwriters to re-examine cyber insurance plan coverage and policy rates. An industry study conducted by NetDiligence found insurance payments for data breaches climbed to an average of $3.7 million between 2006-2011, up more than 50 percent from $2.4 million for claims filed between 2000 and 2005.

“These incidents are certainly a wakeup call for software quality at these organizations,” says Eric Baize, senior director of the product security office at RSA, a division of EMC. “Updates now happen frequently on a weekly basis. It needs to be done increasingly in a time-pressured manner,” and developers often don’t get enough time